If you’re in the market for a new construction home and are exploring financing options, consider an FHA loan. The Federal Housing Administration (FHA) offers a variety of loan options, including FHA One-Time Close mortgages, specifically designed for new construction homes. In this article, we’ll explore the FHA loan options available for new construction homes.
FHA One-Time Close Mortgages
An FHA One-Time Close (OTC) mortgage is a type of FHA loan that combines the financing for the land purchase, construction, and permanent mortgage into one loan. This option is popular with borrowers who want to simplify the home-building process and reduce the number of loans and closings they have to deal with.
With an FHA OTC mortgage, the borrower works with a single lender who handles the financing for the land, construction, and permanent mortgage. The borrower only has to apply once and lock in a fixed interest rate at the beginning of the process.
FHA 203(k) Loans
Another FHA loan option for new construction homes is the FHA 203(k) loan. This loan is designed for borrowers who want to purchase a property that needs significant renovations or repairs. The FHA 203(k) loan can be used to purchase and renovate a new construction home.
With an FHA 203(k) loan, the borrower can finance up to 110% of the property’s after-repair value, allowing them to cover the cost of the repairs and renovations. The loan can finance everything from minor repairs, such as new flooring or kitchen cabinets, to major renovations, such as a new roof or a complete kitchen remodel.
To qualify for an FHA 203(k) loan, the borrower must meet the standard FHA loan requirements, including a minimum credit score of 580 and a down payment of at least 3.5%. The borrower must also work with a contractor approved by the FHA and provide a detailed renovation plan and budget.
FHA Energy-Efficient Mortgages
For borrowers interested in building a new energy-efficient construction home, the FHA offers Energy-Efficient Mortgages (EEMs). These loans are designed to help borrowers finance the cost of energy-efficient upgrades to their unique construction homes.
With an FHA EEM, the borrower can finance the cost of energy-efficient upgrades, such as solar panels, energy-efficient windows, and upgraded insulation, into their mortgage. The borrower can finance up to 5% of the property’s value for energy-efficient upgrades, with a maximum loan limit of $8,000.
To qualify for an FHA EEM, the borrower must meet the standard FHA loan requirements, including a minimum credit score of 580 and a down payment of at least 3.5%. The borrower must also complete a home energy assessment to determine the energy-efficient upgrades’ cost and potential savings.
FHA loan options may be a good choice if you’re looking to finance a new construction home. FHA One-Time Close mortgages, FHA 203(k) loans, and FHA Energy-Efficient Mortgages all offer unique advantages and can help you build the home of your dreams. Be sure to work with a lender and builder approved by the FHA and carefully consider the requirements and costs associated with each loan option before making a decision.